Summary

This analysis seeks to answer two important questions about allowance distribution under H.R. 2454, the American Clean Energy and Security Act (ACESA):

What does ACESA do for states and energy consumers with regards to allowance distribution?

How are the benefits of these allowances distributed among states?

In particular, this analysis focuses on allocations to states and local distribution companies (LDCs) for public benefit purposes such as assistance to energy consumers, investments in energy efficiency and renewable energy, and adaptation to climate change.

ACESA limits total greenhouse gas (GHG) emissions. It requires regulated entities that emit such gases to hold allowances (permits). Each allowance permits the holder to emit one ton of GHGs. Allowances have value and can be sold.

ACESA distributes some allowances for free and auctions others.
The majority are distributed for free to state and federal agencies and other entities with conditions on their use; a smaller, declining portion of allowances is distributed without restrictions to emitters and energy-intensive businesses. The amount of allowances distributed to various purposes changes over time as the cap is reduced and as distribution formulas change.

Key Findings

In 2016, the first year in which all programs are active, ACESA distributes 2.7 billion allowances (49 percent of the total allowance pool) to states and energy consumers:

453 million allowances to states for energy efficiency and renewable energy programs, and to adapt to a changing climate

2.2 billion allowances to residential, commercial, and industrial energy consumers through states and LDCs for cost relief and energy efficiency

All states receive allowances for all programs under ACESA. High-population states receive more allowances due to bigger population and energy consumption profiles; however, carbon intensive and low-population states receive more allowances per capita.

Between 301 million and 532 million allowances are directed towards new funding for cost-effective energy efficiency program to reduce energy demand and consumer cost impacts, and to lower overall costs of the cap-and-trade program.